(Federal Court of Appeals Certifies Question to Nevada Supreme Court Regarding whether Nevada Law Permits an Excess Insurer to Sue a Primary Carrier Based on Equitable Subrogation for the Primary Carrier's Failure to Settle a Lawsuit Within Primary Limits)
(October 2024) - In North River Ins. Co. v. James River Ins. Co., __ F.4th __(9th Cir. August 28, 2024), the U.S. Court of Appeals for the Ninth Circuit certified the following question to the Nevada Supreme Court:
Under Nevada law, can an excess insurer state a claim for equitable subrogation against a primary insurer where the underlying lawsuit settled within the combined policy limits of the insurers?
The parties' dispute arose out of James River's failure to settle a wrongful death lawsuit involving the murder of Marcus Collins at an apartment complex owned by the insured, Alhambra Place Partnership, LP dba Shelter Island Apartments ("Alhambra Place"). The Estate of Mr. Collins filed a lawsuit against Alhambra Place for negligence and wrongful death (the "Estate lawsuit"). Alhambra Place tendered the defense of the lawsuit to its primary insurer, James River, which agreed to defend it. The James River policy included limits of $1 million. North River Insurance Company ("North River") issued an excess policy above the James River policy affording limits of $10 million.
James River rejected settlement demands within its policy limits and the Estate lawsuit ultimately settled for $5 million with a combined contribution of the James River limits of $1 million and North River's payment of $4 million. Subsequently, North River filed a lawsuit in U.S. District Court in California against James River for equitable subrogation, arguing that it stood in the shoes of the insured, Alhambra Place, and because James River failed to settle the Estate lawsuit within its limits when it had an opportunity to do so, North River was entitled to recover the amount of its contribution to the settlement of the lawsuit, i.e., $4 million.
The District Court granted a motion to dismiss filed by James River in response to the North River lawsuit. The District Court determined that Nevada law applied to the lawsuit. Further, under Nevada law, North River could not maintain an action for equitable subrogation against James River.
In certifying the question of whether Nevada law permitted a claim for equitable subrogation against a primary insurer, the Court of Appeals stated as follows:
In this appeal, we must determine whether a material conflict exists between Nevada and California law, such that a choice-of-law analysis is required. See Washington Mut. Bank, 24 Cal. 4th at 919-20. Federal courts sitting in diversity presumptively apply the choice-of-law rules of the forum state, so California choice-of-law rules would apply here. See First Intercontinental Bank v. Ahn, 798 F.3d 1149, 1153 (9th Cir. 2015).
"The California Supreme Court has indicated that the governmental interest test is 'the appropriate general methodology for resolving choice-of-law questions' in California." Cassirer, 69...
